Essays on Economics and Networks

In the first essay, motivated by the seminal work of Robert Fogel on U.S. railroads, I reformulate Fogel's original counterfactual history question on 19th century U.S. economic growth without railroads by treating the transport network as an endogenous equilibrium object. I quantify the effect of the railroad on U.S. growth from its introduction in 1830 to 1861. Specifically, I estimate the output loss in a counterfactual world without the technology to build railroads, but retaining the ability to construct the next-best alternative of canals. My main contribution is to endogenize the counterfactual canal network through a decentralized network formation game played by profit-maximizing transport firms. I perform a similar exercise in a world without canals. I find that railroads and canals are strategic complements, not strategic substitutes. Therefore, the output loss can be quite acute when one or the other is missing from the economy. In the set of Nash stable networks, relative to the factual world, the median value of output is 45% lower in the canals only counterfactual and 49% lower in the railroads only counterfactual. Such a stark output loss is due to two main mechanisms: inefficiency of the decentralized equilibrium due to network externalities and complementarities due to spatial heterogeneity in costs across the two transport modes.;In the second essay, the historical dynamics of entry and exit in the financial exchange industry are analyzed for a panel of 741 exchanges in 52 countries from 1855 through 2012. We focus on economic, technological, and regulatory factors. Using novel panel data evidence, we empirically test whether these factors are consistent with existing financial theories. We find that US exchanges are 4.6% more likely to exit per year after the passage of the Securities Exchange Act. The telephone, literacy, and regulation are robust predictors of financial exchange dynamics. The upward trend in literacy is an important driver of exchange entry.